A sense of urgency in special needs planning: avoiding the negative consequences of waiting to plan

I, like most people, are reluctant to address a problem before it becomes an emergency. For example, my dentist told me over years that I needed to have my wisdom teeth removed. I waited and it became an emergency, and I was in pain for weeks before they could extract the tooth. There are similar consequences for waiting on special needs planning.

People who have been determined to be disabled by the Federal government are entitled to receive several different benefits. Two of the most important benefits that those determined to be disabled can receive are Supplemental Security Income (“SSI”) and Medicaid. SSI pays monthly cash benefits. Medicaid pays for medical expenses, including, in many cases, home health care. To receive SSI, along with being determined to be disabled by the Federal government, applicants for SSI must meet asset and income levels to qualify to receive benefits. To receive SSI, an applicant can have no more than $2,000 total in cash, bank accounts, and other investments. It is important to maintain the level of assets, as qualifying for SSI automatically qualifies an applicant to receive Medicaid which can cover a significant amount of medical costs.

Many times a person with special needs does everything necessary to receive SSI and Medicaid. They have a disability determination and have reduced their assets below $2,000. The benefits go on as planned, until they receive a gift or inheritance from a well-meaning friend or family member. The receipt of such money, causes the loss of SSI and even worse, the loss of Medicaid benefits, which can provide care worth thousands of dollars a month. Receiving the gift or inheritance can have drastic negative effects on the person with a disability’s access to public benefits.

Special needs planning solves this problem. A trust is created to receive gifts and inheritances of a person with special needs. The money is managed by a trusted friend or family member, who is designated as trustee, and does not count against the person with a disability when applying for SSI or Medicaid. Friends and family members can make gifts and inheritances paid directly to the special needs trust. When everything is structured properly, the money moves into the special needs trust and does not disrupt the benefits of the special needs.

We had a case last year where a daughter was receiving SSI and Medicaid. Her mother passed away leaving her as a beneficiary on her IRA worth $85,000. As there had not been planning before the death, the entire amount of the IRA was considered an asset, and thus kicked daughter off her SSI and Medicaid benefits. During the two months it took to get the money transferred into a special needs trust, daughter required two medical procedures. As her Medicaid benefits had been suspended, she was forced to pay over $12,000 in medical bills. Additionally, since the money had to be moved after a death, it was not possible to keep the funds in the retirement account, and they had to be withdrawn, causing $18,000 of income tax. When the medical bills, loss of two months of SSI, and the taxes are totaled, failing to plan ahead cost daughter over $31,000. This is significant, as daughter only received $85,000.

Straightforward special needs planning can prevent such a result. While estate planning can be as fun as going to the dentist, proactively planning can ensure that your family is well taken care of, and that inheritance is preserved.